Public Company Audits Are Still Critical

IMGCAP(1)]For decades, public company auditors have played a critical role in the effective functioning of our capital markets. The value of this role to investors and companies is clear. In fact, the Center for Audit Quality’s Seventh Annual Main Street Investor Survey, conducted by a third-party research group, indicates that investor confidence in publicly traded companies stands at 79 percent, its highest level since the survey was created. Investor confidence in audited financial information released by U.S public companies remains steady at 72 percent, and investors continue to rank independent auditors as the entity they trust the most to look out for their interests.

In light of these facts, it is disappointing to read recent news editorials and reports suggesting that policymakers should eliminate the requirement for U.S. public companies to obtain an annual independent audit. Such a move would harm investors and our economy — and undo years of hard work by regulators and the public company auditing profession.

On the contrary, recent efforts by policymakers have reinforced the importance of the independent external audit. In the wake of the major accounting crisis over a decade ago, the Sarbanes-Oxley Act of 2002 did not dismantle public company auditing — the law added checks and balances to this important function and introduced new reporting requirements for auditors. It also addressed concerns related to audit firm advisory services by charging independent audit committees with managing the appointment and compensation of the external auditor, by barring an audit firm from offering certain non-audit services to audit clients, and by requiring audit committee pre-approval for all non-audit services to be provided to an issuer.

Eighty years ago, the mandate for public company audits was issued to enable sound investment decisions and to facilitate effect functioning of the capital markets. And the public company auditing profession and regulators continue to explore ways to strengthen the auditor’s role and enhance the auditor’s report to make it more informative and beneficial to investors.

Given the complex, global nature of today’s capital markets, investor access to audited financial information is more important than ever. We need to strengthen, not undermine, this critical component of the financial reporting system. The United States has consistently been a leader in corporate governance and investor protection and now is certainly not the time to step back.

Cindy Fornelli is executive director of the Center for Audit Quality.